There Is Still Time to Contribute to an IRA for 2018

Even though tax filing season is well under way, there’s still time to make a regular IRA contribution for 2018. You have until your tax return due date (not including extensions) to contribute up to $5,500 for 2018 ($6,500 if you were age 50 or older on December 31, 2018). For most taxpayers, the contribution deadline for 2018 is April 15, 2019 (April 17 for taxpayers who live in Maine or Massachusetts).

You can contribute to a traditional IRA, a Roth IRA, or both, as long as your total contributions don’t exceed the annual limit (or, if less, 100% of your earned income). You may also be able to contribute to an IRA for your spouse for 2018, even if your spouse didn’t have any 2018 income.

Traditional IRA

You can contribute to a traditional IRA for 2018 if you had
taxable compensation and you were not age 70½ by December 31, 2018. However, if you or your spouse was covered
by an employer-sponsored retirement plan in 2018, then your ability to deduct
your contributions may be limited or eliminated, depending on your filing
status and modified adjusted gross
income (MAGI). (See table below.) Even if you can’t make a deductible
contribution to a traditional IRA, you
can always make a nondeductible (after-tax) contribution, regardless of your
income level. However, if you’re
eligible to contribute to a Roth IRA, in most cases you’ll be better off making
nondeductible contributions to a Roth, rather than making them to a traditional
IRA.

2. Not covered by an employer-sponsored retirement plan,
but filing joint return with a spouse who is covered by a plan

$189,000 to $199,000

$199,000 or more

Roth IRA

You can contribute to a Roth IRA even after reaching 70½ if your MAGI is within certain limits. For
2018, if you file your federal tax return as single or head of household, you
can make a full Roth contribution if your income is $120,000 or less. Your
maximum contribution is phased out if your income is between $120,000 and
$135,000, and you can’t contribute at all if your income is $135,000 or more.
Similarly, if you’re married and file a joint federal tax return, you can make
a full Roth contribution if your income is $189,000 or less. Your contribution
is phased out if your income is between $189,000 and $199,000, and you can’t
contribute at all if your income is $199,000 or more. And if you’re married
filing separately, your contribution phases out with any income over $0, and
you can’t contribute at all if your income is $10,000 or more.

2018 income phaseout ranges for determining eligibility to
contribute to a Roth IRA:

Your ability to contribute to a Roth IRA is reduced if your
MAGI is:

Your ability to contribute to a Roth IRA is eliminated if
your MAGI is:

Single/Head of household

$120,000 to $135,000

$135,000 or more

Married filing jointly

$189,000 to $199,000

$199,000 or more

Married filing separately

$0 to $10,000

$10,000 or more

Even if you can’t make an annual contribution to a Roth IRA
because of the income limits, there’s an easy workaround. If you haven’t yet
reached age 70½, you can make a
nondeductible contribution to a traditional IRA and then immediately convert
that traditional IRA to a Roth IRA. Keep in mind, however, that you’ll need to
aggregate all traditional IRAs and SEP/SIMPLE IRAs you own — other than IRAs
you’ve inherited — when you calculate the taxable portion of your conversion.
(This is sometimes called a “back-door” Roth IRA.)

Finally, if you make a
contribution — no matter how small — to
a Roth IRA for 2018 by your tax return due date and it is your first Roth IRA
contribution, your five-year holding period for identifying qualified
distributions from all your Roth IRAs (other than inherited accounts) will
start on January 1, 2018.

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Author: Paragon Financial Partners

Paragon Financial Partners, Inc. is a Registered SEC Investment Advisor. The topics discussed herein are for informational purposes only and should not be considered as a solicitation or offer to purchase or sell any securities. The financial strategies and guidelines discussed herein may not be appropriate for everyone as each individual circumstance is unique. Please review all tax information with your tax professional. Please review all legal information with your legal professional. If you have any questions or would like to speak with us, please contact us by phone at (310) 557-1515 or by email at info@paragonfinancialpartners.com.
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